SMEs have a significant role to play in relation to achieving net zero targets and creating economic growth. However, larger corporations also are an essential piece of the puzzle. They need to support SMEs in their green transition and skills-building. This kind of support has already been witnessed in the business world. Several big businesses and SMEs are joining in successful partnerships to drive environmental change and boost the economy.
SMEs act as a source of innovation, employment, and entrepreneurial skills. Both sides can learn from one another to help them reach their goals. Continue reading as we further explore the role of big businesses in SME growth in 2023.
Importance of resilience for SMEs
It is apparent that SMEs can greatly help us achieve sustainable global economic growth, increasing employment in both rural and urban areas and pushing the boundaries of innovation. They make up a vast amount of our global businesses. In OECD countries, approximately 99 percent of all private sector companies are SMEs.
Not just that, they also account for 75 percent of jobs in OECD countries. Resilience is something that comes second nature to SMEs, and they are used to adapting and changing for the greater good. A recent study by Sky Connect uncovered that 80 percent of British SMEs showed resilience amidst the COVID-19 pandemic.
The majority of these businesses adapted their business and 75 percent anticipated a positive future for their business from doing so. Even with the challenges SMEs face and the resource restraints, they still manage to bounce back. They are largely overlooked but they generate almost 70 percent of jobs and GDP across the globe.
They are at the heart of economic growth strategies for the majority of emerging markets seeking to climb the development curve. With this in mind, it is vital we boost SMEs’ resilience capabilities even further. One way to do that is by empowering them to go digital. The long-term viability of most SMEs will be determined by their ability to do exactly this.
Digital transformation is happening in businesses of all sizes, in every sector, and in all locations. However, small organisations are typically less likely to embrace digital than media enterprises. The main reasons for this are cost and lack of understanding surrounding how the digital transformation could help them scale. Small businesses experience greater challenges going digital, but the need to do it is imperative. McKinsey research finds the biggest 10 percent of businesses in digital channels reap 60 to 95 percent of digital revenues.
With this in mind, if we are striving for a future with green growth, and shared prosperity, we need to make sure SMEs are part of the digital transition. The development of SMEs has generally been handled by governments via programmes. However, big businesses are also aware of their ability to help close the digitisation and financing gap for small businesses. Goldman Sachs and Google are two large corporations that have been helping SMEs undergo digital transformation via training.
Why big businesses should support SMEs
Smaller enterprises are vital to solving two of the world’s most significant challenges. These include how to spur sustainable and ensure equitable economic prosperity and how to decarbonise to achieve net-zero goals. Supporting small and medium enterprises to step up to tackle these challenges cannot solely be encouraged by governments.
Larger corporations also need to play a part in spurring SMEs on and supporting them in skills-building, particularly around digitisation. In addition, assisting them to establish an ecosystem for the green transition, including accessing financing. Evidently, digitisation is a challenge for SMEs, and if this cannot be overcome, the goal of achieving a net zero future seems even more daunting for small businesses to reach.
Global supply chains also require serious investment to achieve net zero by 2030. Boston Consulting discovered the amount required is $100 trillion and that as much as half of that investment needs to come from small businesses. Not only do small businesses have to invest this amount, but they also have to rethink product design, improve data gathering, and invest in climate tech.
Unfortunately, to date, small businesses are recipients of less than 3 percent of support for going green. Large businesses are directly affected by this and recognise the small business problem. They are facing immense pressure to show progress on their emissions targets and ESG goals. They know how challenging it is to meet reporting requirements, measure climate impact, and achieve benchmarks.
Many of their small business customers and suppliers do not have the means to report and collect accurate data on their energy use, waste, emissions, and climate impact. In saying that, SME empowerment is a vital change agent and growth driver. This is particularly true for emerging markets which power most of our enterprises. We can no longer ignore the role small businesses have to play here. Rather, we need large corporations to work with smaller players to drive digital transformation and green transition. There is also a strong business and environmental case for big businesses to support and assist SMEs to grow toward achieving their climate goals.
How can big businesses support SME green growth?
Larger corporations can help small and medium enterprises improve their resilience by driving their adoption of digital technologies. They can educate them on how to report and collect climate data using technology so they can minimise their impact. In addition, securing the financing necessary to achieve net zero.
There are benefits for businesses that help SMEs succeed in their green transitions. Firstly, enabling them to be able to measure and curb their emissions means big corporate players can establish more resilient supply chains. Climate-related disasters and risks are becoming increasingly prevalent, so building resilient businesses have never been more vital.
Moreover, most large corporations’ greenhouse gas emissions can be traced to their supply chains. Their supply chains are usually made up of SMEs so helping these businesses helps them tackle their indirect and direct emissions more efficiently. Big corporations can support SME growth by directing them to the SME Climate Hub.
The Hub was launched to help small businesses achieve their climate goals. For instance, the SME Climate Hub is aimed at offering SMEs the resources they require to take climate action. The Hub consists of a series of tools to mobilise SMEs and enable them to better report on and measure their emissions.
Some of these supports include a carbon emissions reporting framework, a carbon calculator, an educational course, and a financial support guide. All of these materials were created to assist SMEs in mitigating their environmental impact more seamlessly while simultaneously focusing on building resilient business models. The purpose of the initiative was to provide support as it is believed small businesses have the potential, but should not be expected to achieve without some assistance.
It is important to still recognise that these businesses have great intentions but they do lack resources. The Hub’s carbon calculator was created by Normative in support of Google, which shows how big businesses are already creating that olive branch for support. In addition, the SME Climate Hub continues to build out tools and financial resources to make climate action as accessible as possible for small enterprises. To achieve our collective goal of net zero, all businesses have to join forces.
Beyond the SME Climate Hub, big businesses can also offer financial support and business advantages to their SME suppliers, encouraging and incentivising them to address climate change. Climate action ensures short-term cost-saving benefits but also long-term business resilience. IKEA is one example of a business that is already doing this. They are offering SMEs in their supply chain support to transition to 100 percent renewable energy by enabling the purchase of renewable electricity and financing on-site investments.
If the corporate world is genuinely serious about its commitment to drastically curb emissions by 2030, large organisations must activate their customers and suppliers. There are so many businesses currently working on minimising their Scope 3 emissions through science-based emissions reduction targets. This is fantastic news, but we still need smaller businesses to take action. Unfortunately, it is these businesses who desperately need support. Collaboration is absolutely vital if we are to ensure a livable planet for future generations to come.
SMEs will be crucial in our efforts to achieve a green, net zero transition. However, they do not have the same resources readily available to them as big companies. In order to achieve our climate goals by the time-sensitive deadlines, businesses must come together and join forces.
The collaboration not only helps SMEs improve their climate efforts and become more resilient but also benefits larger corporations by allowing them to minimise emissions throughout their supply chain. In particular, tackling those scope 3 emissions which are the most challenging to reduce. The results of these partnerships will see us achieve a healthy planet.